Dollar briefly hits parity, highest level since '76

Finance Minister Jim Flaherty said a weak U.S. dollar was the "real story" behind the loonie briefly reaching parity with U.S. currency for the first time in 31 years.

"The real story here is the rather dramatic decline in the U.S. currency in recent days and as a result the Canadian dollar is up significantly," Flaherty told reporters. He said he'd just had a conversation with Bank of Canada Governor David Dodge, to discuss the implications of a Canadian dollar even in value to a U.S. dollar.

At 10:58 a.m. EDT, the loonie rose as high as 1.0008 US before closing at the end of the trading day at 99.87 cents US -- up 1.37 cents US from Wednesday.

Flaherty told reporters that the strength of the dollar brings both pros and cons for the economy.

"It helps Canadian manufacturers acquire new technology, but then it also puts some pressure on manufacturers, particularly the suddenness of the depreciation of the US dollar," he said. "We've seen some reduction in demand with respect to U.S. housing, with respect to automobiles."

The weak U.S. economy, caused specifically by the housing market, has been hurting the Canadian forestry industry, he said.

"What I can do in Canada is help to increase productivity through tax policy,'' he said. "The key to manufacturing success in Canada is high productivity, improved productivity, and that will tell the tale over time."

The recent strength of the Canadian dollar was supported by lofty commodity prices, a strong domestic economy and concerns about a U.S. economic slowdown.

BNN's Michael Hainsworth says the need for Canadian oil, natural gas and other natural resources in markets such as China's has pushed the value of the Canadian dollar up.

"In the last five years, China's growth rate has been so phenomenal and their demand for everything we provide them has been so strong, that's been an underpinning for the prices that everybody else has had to pay for our products."

He said analysts expect the Canadian dollar will hover around parity for the foreseeable future.

"They are suggesting to me by the time we pop the champagne corks for 2008, we will continue to be at parity."

One benefit of a loonie equal to the U.S. greenback is a boost in national pride, one analyst said Thursday.

"Maybe more than anything, it means a great lift in the confidence of Canadians have in themselves and certainly in their country," ScotiaMcLeod's Fred Ketchen told CTV News.

Analysts say what helped pushed the Canadian dollar over the top was some new trade data from Statistics Canada, which reported the economy was surprisingly strong in July.

The chief economist at the TD Bank Financial Group says there are clear winners and losers from an economic perspective. But on balance, the impact is negative for the Canadian economy, said Craig Alexander.

Alexander says the strong loonie also makes life difficult for the tourism and hospitality sectors. On the other hand, it's a positive for importers, wholesalers and consumers.

The Canadian dollar was last at the US$1 mark on November 25, 1976, when Pierre Trudeau was prime minister and Rene Levesque had just become Quebec's premier.

The Canadian dollar's all-time high against the U.S. dollar occurred in 1957. That's when it closed at $1.06 U.S. It reached a low of 62 cents US in 2002.

Weak U.S. greenback

The American dollar's weakness was evident across most currencies Thursday as it slumped versus the euro, the British pound, the yen and Swiss franc.

And Alexander warns it's important to keep in mind that the exchange rate we watch so closely is the value of the Canadian dollar compared to the U.S. currency.

"In recent years what we've been getting is a rise in the loonie on a strong economy, and commodity prices -- which are domestic fundamentals," he told Newsnet. "But it's also a reflection of weakness in the U.S. dollar, which has been falling against most major currencies.

"And although the Canadian dollar has outperformed the euro and many other currencies in the last year, the reality is most currencies have been going up against the U.S. dollar."

Bush: Fundamentals are 'strong'

While the U.S. greenback continues to tank against the Canadian dollar and the euro, questions are being asked about the health of the American economy.

U.S. President George Bush pushed aside those concerns on Thursday, telling a news conference the U.S. economy is healthy, despite this rough patch.

"I say that the fundamentals of our nation's economy are strong. Inflation's down, job markets are steady and strong. The national unemployment rate is 4.6 per cent. Corporate profits appear to be strong, exports are up."

He added, however, there is no question that these are "unsettling times" for the housing market.

Commenting on the mortgage crisis in the U.S., Federal Reserve chairman Ben Bernanke said it has created "significant market stress." He offered assurances that regulators would take steps to curb any related fallout.

"Global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans," he said in remarks prepared for presentation to the House of Representatives' financial services committee.